What will follow LNG’s wild spot market?


Call it what you will: energy problem, energy shortage, energy crunch, energy crisis.  Media and social media have called it all of the above in ever-scarier headlines.

Just be grateful you don’t live in a country that is badly affected, with the UK, the European Market, India and China prominent among them.

Now add in inflation, which is running as high as 14-plus percent in some nations, attributed to post-pandemic supply and demand, supply-line disruptions as demand for goods grows, and huge government spending on pandemic relief programs.

It has all meant the price of LNG and natural gas has soared, with the price of LNG in the spot market hitting as much as US$56.32 for a million British Thermal Units (mmBtu).

That’s a massive surge since the low of $5.80 at the end of February. And even more massive from the record low of $1.85 in May 2020, when the COVID-19 pandemic slashed demand.

The cost of shipping LNG has soared too, with charter rates for LNG carriers rising to US$124,000 per day from a low of US$16,000 earlier this year.

(Which reminds us of a big advantage of BC LNG: LNG Canada is only 7-10 days sailing away from Asian markets, compared with 21-24 days via the Panama Canal for big LNG exporters on the US Gulf Coast.)

The Washington Post: “As the global economy recovers and global leaders prepare to gather for a landmark conference on climate change, the sudden energy crunch hitting the world is threatening already stressed supply chains, stirring geopolitical tensions,  and raising questions about whether the world is ready for the green-energy revolution when it’s having trouble powering itself right now.

“The economic recovery from the pandemic recession lies behind the crisis, coming after a year of retrenchment in coal, oil and gas extraction.

“Other factors include an unusually cold winter in Europe that drained reserves, a series of hurricanes that forced shutdowns of Gulf oil refineries, a turn for the worse in relations between China and Australia that led Beijing to stop importing coal from Down Under, and a protracted calm spell over the North Sea that has sharply curtailed the output of electricity-generating wind turbines.”
And so the spot price of LNG has ballooned.

As Stewart Muir of Resource Works noted on Twitter on Oct. 13: “Fun fact: at today’s Asian cargo prices for LNG, if the LNG Canada terminal in Kitimat was up and running it would generate $48 billion – yes, billion – Cdn in annual revenues. Nearly a billion dollars a week.”

To those who are beating pessimistic breasts about the energy crunch/crisis, a reminder that today’s wild prices are about short-term supply and demand.

Optimists say the LNG market should all be in much better balance in the longer term, with rosy hopes for when LNG Canada and/or Woodfibre LNG start shipping LNG in late 2025, or soon after.

Thus, long-term projections of supply and demand see success ahead for BC’s LNG producers.

So let’s hold onto such longer-range forecasts and expectations as these:

  • Shell (a 40% partner in LNG Canada) expects global LNG demand to reach 700 million tonnes by 2040 (up from the current 360 million tonnes), with Asia expected to drive nearly 75% of the growth.
  • The International Energy Agency sees world demand for LNG doubling by 2040.
  • Baker Hughes, the Australian petroleum services giant, sees the need for global LNG capacity to rise to 800 million tonnes by 2030, more than double current capacity.

Major shipping lines have been ordering record numbers of LNG carriers to ship cargoes.

As further proof of anticipated demand, just last week China’s ENN signed a 13-year agreement to buy LNG from Cheniere, the No. 1 exporter of US LNG. BP signed a 10-year deal to supply LNG to China’s Shenzhen Gas. And China okayed yet another new LNG import terminal, which will be that country’s 22nd.

Earlier this year, too, Woodfibre LNG signed a second sales agreement with BP Gas Marketing (BPGM), bringing BPGM’s total LNG off-take to 1.5 million tonnes a year — over 70 per cent of Woodfibre’s future annual production.

As well, a number of major LNG buyers now are signalling that they are open to contracts with much longer terms if prices can be held down.

Still, there are reports that China  is looking to lock in US LNG, which could lead to deals worth tens of billions of dollars for American exporters.

Prices will be driven by supply, of course, as well as demand. And with six US LNG export facilities expected to begin service in 2024, the outlook will indeed be for more stable prices in 2025 and later.

It looks as if LNG Canada and Woodfibre LNG have got their timing right. So, too, do the planners of the Haisla Nation’s Cedar LNG project, and the Nisga’a Nation’s Ksi Lisims LNG project.

(Posted here 15 October 2021)


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